Emissions of nitrous oxide (N2O) from managed and grazed grasslands on peat soils are amongst the highest emissions in the world per unit of surface of agriculturally managed soil. According to the IPCC methodology, the direct N2O emissions from managed organic soils is the sum of N2O emissions derived from N input, including fertilizers, urine and dung of grazing cattle, and a constant ‘background’ N2O emission from decomposition of organic matter that depends on agro-climatic zone. In this paper we questioned the constant nature of this background emission from peat soils by monitoring N2O emissions, groundwater levels, N inputs and soil NO3 −–N contents from 4 grazed and fertilized grassland fields on managed organic peat soil. Two fields had a relatively low groundwater level (‘dry’ fields) and two fields had a relatively high groundwater level (‘wet’ fields). To measure the background N2O emission, unfertilized sub-plots were installed in each field. Measurements were performed monthly and after selected management events for 2 years (2008–2009). On the managed fields average cumulative emission equaled 21 ± 2 kg N ha−1y−1 for the ‘dry’ fields and 14 ± 3 kg N ha−1y−1 for the ‘wet’ fields. On the unfertilized sub-plots emissions equaled 4 ± 0.6 kg N ha−1y−1 for the ‘dry’ fields and 1 ± 0.7 kg N ha−1y−1 for the ‘wet’ fields, which is below the currently used estimates. Background emissions were closely correlated with groundwater level (R 2 = 0.73) and accounted for approximately 22% of the cumulative N2O emission for the dry fields and for approximately 10% of the cumulative N2O emissions from the wet fields. The results of this study demonstrate that the accuracy of estimating direct N2O emissions from peat soils can be improved by approximately 20% by applying a background emission of N2O that depends on annual average groundwater level rather than applying a constant value